Finance
Negative amortization occurs when:
AThe loan balance decreases faster than scheduled
BMonthly payments are insufficient to cover accrued interest, causing the principal balance to increase✓ Correct
CThe interest rate decreases during the loan term
DThe borrower makes extra principal payments
Explanation
Negative amortization occurs when the minimum required payment is less than the monthly interest charge. The unpaid interest is added to the principal balance, causing it to grow over time. This was common in certain types of ARMs before the 2008 crisis.
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